Nebraska Couldn't Wait for FCC to Revamp USF Contribution

States with dwindling intrastate USF revenue aren't waiting for the FCC to decide how to revamp federal contribution. The Nebraska Public Service Commission this week became the second state regulator to adopt connections-based contribution to replace a revenue-based model. A representative for small rural companies applauded and said it’s time for the FCC to act. The Utah PSC previously adopted a connections mechanism that will take effect Jan. 1 (see 1710240042). The New Mexico Public Regulation Commission may soon hold stakeholder discussions about moving to connections.

Eroding state USF revenue drove the Nebraska decision, said the order. Revenue declined 19 percent to $40 million in 2016 from 2014, down 34 percent since 2005, said the order. The PSC predicted it would decline 16 percent between 2016 and 2017 and another 23 percent in 2018. If Nebraska kept a revenue-based mechanism, NUSF "may not be sustainable or technologically neutral,” it said. “Increasing the surcharge percentage on a declining base does not address the underlying erosion of assessable telecommunications revenue.”

“We would only hope that the FCC would take notice of important actions like this and follow,” said Great Plains Communications Vice President Ken Pfister, representing a coalition of rural providers in the Nebraska USF proceeding. By noting FCC inaction in its order, the PSC “sent a pretty loud message that this is supposed to be a joint state and federal responsibility to bring affordable voice and broadband out to all the customers,” but only states are “stepping up to the plate,” he said. That agency declined comment Thursday.

“The FCC’s going to do what the FCC’s going to do,” said Nebraska Commissioner Crystal Rhoades in an interview. “We hope that they will continue to support USF, but that’s really their call.” It's important for Nebraska to ensure funding for state USF because it has “network demands and consumer demands that are going unmet,” and all Nebraskans should have broadband access, she said. A wireless attorney said the PSC action “definitely emboldens other states” but is unlikely to pressure the FCC.

The FCC has been considering federal USF contribution changes since 2002. In 2012, the agency released various proposals for comment, then in 2014 referred the matter to the Federal-State Joint Board on Universal Service. Wireless carriers and cable companies urged the PSC to wait for FCC action (see 1709210038), but commissioners were “unpersuaded,” the order said.

Nothing in state or federal law requires the PSC to keep revenue-based contribution, it said. "We do not believe our adoption of a connections-based mechanism assessing intrastate voice connections will rely on or burden the federal mechanism. However, we find that at such time as when the FCC makes a decision on contribution reform, the Commission will open a proceeding to determine whether any changes in the state NUSF contribution mechanism should be made.”

Nebraska's decision "will not benefit Nebraskans," CTIA Senior Vice President-State Affairs Jamie Hastings said. Charter Communications and Cox Communications didn’t comment.

Nebraska's new contribution method will assess intrastate wireline, wireless and VoIP connections but not stand-alone broadband internet access services. Connections-based contribution won’t immediately replace the revenue-based model, with the Nebraska order teeing up a proceeding to address implementation issues including rate design, costs and the timeline and whether to use FCC Form 477 or Telecom Relay Service data for identifying and capping connections.

Rhoades wants the connections-based mechanism implemented by the end of 2018, she said. In the coming proceeding, the PSC should adopt a more granular approach to USF distribution, said Rhoades, who issued a concurring statement urging the commission to make more "holistic" changes. “We need to be very deliberate about how much money is being used for ongoing operational expenses and how much is being used to build,” she told us: “We need to have real numbers so that we have a real target that we’re shooting for” and “a better understanding of where the needs really are and how we’re going to meet those.”

Nebraska's adopting connections is an “important first step” and the implementation proceeding is “probably equally important” because it will set rates and the fund size, said Pfister, predicting the matter will extend through most of 2018, with the new mechanism taking effect by 2019. The Great Plains official agreed the PSC should address distribution issues in the new docket.

New Mexico PRC staff recommended workshops, comments and a hearing on shifting to connections-based contributions. “Because there are many issues that need to be clarified to generate accurate reporting and administration utilizing a communication connection methodology, the Commission/Hearing examiner should meet with the parties to plan how to go forward to smooth the transition to a methodology based on communication connections,” staff wrote Oct. 26 in docket 17-00202-UT. Implementing connections by Jan. 1 is unlikely “without encountering major difficulties,” Telecom Bureau Chief Michael Ripperger said.

The Regulatory Commission of Alaska plans to discuss broad changes to state USF at its meeting Wednesday, said an agenda. Doing nothing isn't an option, Alaska Commissioner Rebecca Pauli said (see 1710250022).

"Some states can’t afford to wait," due to declining state USF revenue, NARUC General Counsel Brad Ramsay said. "The delay in the release of a Joint Board-recommended decision on contribution reform is impacting state programs. Once the Joint Board releases a recommended decision, and the FCC reforms contribution at the federal level, it should provide a template for complementary state action."